The deal, flagged by Reuters last month, is subject to regulatory approval, Siemens said on Wednesday.
The announcement comes a day before new Chief Executive Joe Kaeser presents the company’s annual results. Investors have said they hope he will provide some clues as to his future strategy for the company.
Under his predecessor Peter Loescher, the industrial conglomerate whose products range from gas turbines to fast trains and industrial automation software, started shedding assets to cut costs and close a gap with more profitable rivals such as Switzerland’s ABB and U.S.-based General Electric.
Siemens, Germany’s second-biggest company by market value, said a year ago it would divest the water technology business because most of it operates in a highly fragmented market, serving municipal and industrial clients, and so has little in common with its global sales set-up.
The unit offers products ranging from conventional water treatment to emergency water supply and water disinfection systems.
It generated $1.3 billion in revenue in 2012 and, according to estimates from bidders, its EBITDA was between $70 million and $80 million.
Siemens plans to keep some parts of the business.
“There are major synergies for these solutions as well as promising growth potential within Siemens’ Environmental Portfolio,” the company said in a statement.
Siemens built up its water business by bolting together several acquisitions over the last decade, including the water systems and services division of U.S. Filter, which it bought from Veolia Environnement for $1 billion in 2004.
This year it spun off its lighting business Osram, sold its stake in mobile telecoms equipment maker Nokia Siemens Networks, and has been in talks to sell its postal automation and baggage handling businesses.
Two people familiar with that transaction told Reuters last month that Siemens was in advanced talks to sell the postal automation and baggage handling businesses to private equity investor Triton, after investor Sun Capital dropped out.
Maria Sheahan is a reporter for Reuters News in Frankfurt